Author Archives: Jason Kelly

Unleashing the Hydra: Recent Trends in Parallel Criminal and Regulatory Investigations

by William J. Stellmach, Amelia A. Cottrell, Elizabeth P. Gray, Paul J. Pantano Jr., Neal E. Kumar, and Samantha G. Prince

A recent decision by a federal judge in Illinois caps a series of setbacks for federal prosecutors bringing cases born out of parallel investigations with U.S. regulatory agencies.  Increasingly, courts have faulted the U.S. Department of Justice (“DOJ”) and regulatory agencies for failing to ensure that their respective investigations remain separate and distinct, triggering broader disclosure obligations for prosecutors.  Those higher hurdles, while increasing government transparency for those being investigated, may also increase the risk of greater costs for financial institutions and companies confronting multiple, uncoordinated investigations.  If government authorities interpret their latest reversals as mandating less coordination and collaboration with one another, then investigatory targets may ultimately pay the price.

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Insider Trading in Commodities Markets: An Evolving Enforcement Priority (Part IV of IV)

by Douglas K. Yatter, Sohom Datta, and Cameron J. Sinsheimer

This is Part IV of a four-part post. For Part I, discussing the CFTC’s historical authority to bring insider trading actions, and the CFTC’s expanded authority after the Dodd-Frank Act, click here. For Part II, discussing recent enhancements in the CFTC’s ability to detect insider trading, and four of the CFTC’s foundational insider trading cases, click here. For Part III, discussing two of the CFTC’s recent settlements involving insider trading and misuse of confidential information, click here.

In another new area of collaboration between the agencies, the CFTC’s Division of Enforcement announced in March 2019 that it would work alongside the DOJ to investigate foreign bribery and corruption relating to commodities markets, issuing an enforcement advisory on self-reporting and cooperation for violations of the CEA involving foreign bribery.[1] The agency’s first enforcement action in this area arrived in late 2020 with an order that included a focus on misappropriation of confidential information.

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Insider Trading in Commodities Markets: An Evolving Enforcement Priority (Part III of IV)

by Douglas K. Yatter, Sohom Datta, and Cameron J. Sinsheimer

This is Part III of a four-part post. For Part I, discussing the CFTC’s historical authority to bring insider trading actions, and the CFTC’s expanded authority after the Dodd-Frank Act, click here. For Part II, discussing recent enhancements in the CFTC’s ability to detect insider trading, and four of the CFTC’s foundational insider trading cases, click here.

Three additional settlements recently announced by the CFTC further reinforce the agency’s interest in identifying and deterring misappropriation of confidential information. The latest matters also herald the arrival of criminal enforcement by the DOJ in this area.

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SEC Staff Issues Risk Alert on Continued Focus on Digital Asset Securities in Examinations

by Justin L. Browder, J. Christopher Giancarlo, Conrad G. Bahlke, James R. Burns, Anne C. Choe, Elliot J. Gluck, Elizabeth P. Gray, and Artyom Rogov

The staff of the Securities and Exchange Commission’s Division of Examinations (the “Division”) published a risk alert on February 26, 2021,[1] offering guidance on the digital-asset related activities that the Division will focus on during examinations of investment advisers, broker-dealers, exchanges and transfer agents.  Notably, the guidance applicable to investment advisers and broker-dealers, in certain instances, applies to both digital assets that are securities (“Digital Asset Securities”) as well as other digital assets issued and/or transferred using distributed ledger or blockchain technology – including, but not limited to, virtual currencies, coins and tokens – that may or may not be securities under the federal securities laws (“digital assets”). 

The Division’s continued focus on this area is further demonstrated by the inclusion of digital assets and FinTech as priorities in the Division’s 2021 Examination Priorities, which were published on March 3, 2021.[2]  The Examination Priorities release notes that examinations of market participants engaged in digital asset activities will continue to assess: (i) whether investments are in the best interests of investors; (ii) portfolio management and trading practices; (iii) safety of client funds and assets; (iv) pricing and valuation; (v) effectiveness of compliance programs and controls; and (iv) supervision of representatives’ outside business activities.

In this post, we outline the key areas of focus highlighted by the Division in the February 26th risk alert.

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Insider Trading in Commodities Markets: An Evolving Enforcement Priority (Part II of IV)

by Douglas K. Yatter, Sohom Datta, and Cameron J. Sinsheimer

This is Part II of a four-part post. For Part I, discussing the CFTC’s historical authority to bring insider trading actions, and the CFTC’s expanded authority after the Dodd-Frank Act, click here.

Expansion of CFTC Resources to Detect and Deter Insider Trading

In 2018, to enhance its efforts to identify and take action against insider trading, the CFTC announced the formation of an Insider Trading and Information Protection Task Force (Task Force). The CFTC described the Task Force as “a coordinated effort across the Division to identify and charge those who engage in insider trading or otherwise improperly use confidential information in connection with markets regulated by the CFTC.”[1] The Task Force has endeavored to “thoroughly investigate and, where appropriate, prosecute instances in which individuals have abused access to confidential information — for example, by misappropriating confidential information, improperly disclosing a client’s trading information, front running, or using confidential information to unlawfully prearrange trades.”[2] The Division of Enforcement has noted the ongoing importance of this effort, including in its FY2019 Annual Report, which emphasized that “[i]llegal use of confidential information can significantly undermine market integrity and harm customers in our markets.”[3]

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Insider Trading in Commodities Markets: An Evolving Enforcement Priority (Part I of IV)

by Douglas K. Yatter, Sohom Datta, and Cameron J. Sinsheimer

Among the many changes resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), one that has been slow to develop, but broad in its significance, is the assertion of authority by the Commodity Futures Trading Commission (CFTC) to police insider trading and misappropriation of confidential information in commodities markets. As the primary regulator for derivatives across a wide range of markets, spanning agriculture, energy, interest rates, and beyond, the CFTC had limited authority to address insider trading throughout most of its history. Starting in 2015, however, the agency began bringing enforcement actions against individuals and companies for trading based on misappropriation of confidential information. Since then, the CFTC has brought a series of actions that provide insight into the scope of its new authority, and it has devoted substantial resources to pursuing new cases. Recent enforcement actions in 2020 and early 2021 have continued this trend.

This four-part post reviews the evolution of the CFTC’s insider trading enforcement authority, summarizes the agency’s recent cases, and highlights key developments, including the advent of “tipper” liability, the use of data analytics to identify potential misconduct, and the emergence of parallel criminal enforcement actions. Financial institutions and market participants should be aware that the CFTC — and now also the Department of Justice (DOJ) — will continue to be on the lookout for additional cases to pursue in this emerging area of enforcement.

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SEC Division of Enforcement Forms New Climate and ESG Task Force to Target ESG-Related Misconduct and Potential Violations

by David M. Silk, Wayne M. Carlin, David B. Anders, Sabastian V. Niles, and Carmen X. W. Lu

Last week, the SEC Division of Corporation Finance announced (PDF: 131 KB) it would enhance its focus on climate-related disclosures and risks at the direction of the Acting Chair of the SEC. Yesterday, the SEC announced a new Climate and ESG Task Force within the SEC’s Division of Enforcement. This Enforcement Task Force will be heavily resourced, have access to ESG-related whistleblower complaints and referrals and focus on proactively identifying ESG-related misconduct (such as material disclosure “gaps” and misstatements), including by using data analysis to identify potential violations.

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Financial Institutions and Congressional Investigations – 2020 into 2021

by Robert Kelner, Brian Smith, Angelle Baugh, and Brendan Parets

Financial institutions are consistently targets of congressional oversight interest. In the last Congress, House and Senate committees held hearings with, demanded documents from, requested interviews with, and hosted briefings from a number of bank and non-bank financial institutions regarding a variety of issues. In this post, we look at the recent trends in congressional investigations of financial services companies and predict the future trajectory of investigations related to this industry. 

Even as we write this post, Congress is pursuing investigations and hearings related to the stock trading controversy concerning GameStop, Reddit, and Robinhood. These inquiries fit with recent trends in congressional investigations of the financial service sector, such as the focus on financial companies of all sizes and concerns about consumer harm.

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Will Virginia Be the Next Domino to Fall in State Privacy Law?

by Nathan D. Taylor and Robert N. Famigletti

As the Virginia Consumer Data Protection Act (H.B. 2307) heads to Governor Northam’s desk, it appears increasingly likely that Virginia will become the second state to enact a comprehensive consumer privacy law.

After overwhelmingly passing slightly different versions of the bill in late January and early February 2021, Virginia’s House of Delegates and Senate reconciled and passed a substitute, H.B. 2307, on February 19, 2021.  This comes just three months after California voters dramatically changed the California privacy law landscape by approving the California Privacy Rights Act (CPRA), a set of numerous amendments to the California Consumer Privacy Act (CCPA) that will become operative on January 1, 2023.  If enacted, H.B. 2307 will impose additional compliance obligations beyond the CCPA, even as amended by the CPRA.  Moreover, Virginia’s passage of comprehensive privacy legislation may encourage other state legislatures to follow suit—all likely renewing the call for a federal consumer privacy law.

This post provides an overview of the Virginia bill, with a focus on the areas in which it departs from the CCPA and/or CPRA.  Like the CPRA’s substantive obligations, H.B. 2307, if enacted, would become operative on January 1, 2023.

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2021 AML Trends and Developments (Part III of III)

by Franca Harris Gutierrez, Boyd Johnson, Bruce Newman, Michael Dawson, Zachary Goldman, Rachel Dober, Michael Romais, Alina Lindblom, and Andrew Miller

This is Part III of a three-part post. For Part II, discussing SAR reform, click here. For Part I, discussing the collection of beneficial ownership information, click here.

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